"Hello Tommy.
We want you to know that we are very pleased with the quality of service your company provides. We sincerely appreciate your responsiveness and the way you conduct business. We have recommended your company to others because of our satisfaction with your service. We look forward to doing business with you for years to come.
From the bottom of our heart ,Tom and Oudom Vongphakdy ,we again appreciate
you caring and pull us out from drowning in heavy debt. Thank you
Best Regards
"
Tom & Oudom Vongphakdy
15 May. 2009
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| Refinancing and Debt Consolidation |
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The 5 year fixed rate mortgage has been the standard mortgage taken out by Canadians, yet statistics show that 70% of Canadians will break their mortgage before this term is up. Similarly, over the past 60 years, 89% of the time, going with a variable or short term mortgage has saved you money over choosing the standard 5 year fixed rate mortgage. MB Direct Mortgage Agents can show you how to save money on your refinance by offering terms and options you may not have considered.
What benefits can refinancing produce? Improved cashflow and reduced interest payments are the two most important benefits.
Reduced Interest Payments
Client A has a $200,000 mortgage@ 5.45% with 2 years left until maturity. He also has $30,000 in consumer debt - department store cards, credit cards, loans - with an average rate of 16%. That means that the average rate client A is paying on his total $230,000 in debts is 6.83%.
Solution: Client A refinances his mortgage and faces the following costs
Legal fees $750
Appraisal $275
Estimated penalty to break mortgage $9,000
So there are two scenarios:
#1 a mortgage equivalent to $230,000 at 6.83%
#2 a mortgage equivalent to $240,025 at 3.05% (all fees and penalties are added)
After two years which situation will be better?
| |
Balance |
Rate |
Term |
End Balance |
Interest Paid |
Amortization |
| Mortgage #1 |
$230,000 |
6.83% |
2 years |
$222,416 |
$30,500 |
25 years |
| Mortgage #2 |
$240,025 |
3.05% |
2 years |
$215,791 |
$13,852 |
15.9 years |
| Difference |
$10,025 |
3.78% |
- |
$6,625 |
$16,648 |
9.1 years |
After only two years, the benefit is clear. By adding high interest rate debts into a low rate refinanced mortgage, consumers can drastically reduce the amount of interest they pay even when there is a penalty and legal fees associated with the refinance.
This example assumes that the payment amount is the same for both mortgages : $1587.00 a month, and for the purposes of the example it assumes the high rate debts are lumped in with Mortgage #1.
Look what happens to the amortization: you will pay the mortgage off almost 10 years sooner.
Look what happens to the interest paid: it is reduced substantially, even over 2 years.
Finally, look where the ending balance is, even after adding the $10,025 in penalties and fees.
Improved Cashflow
Taking the example above, what if your goal is not to reduce the amount of interest you pay, but to free up cash flow for other needs? If you were to pay the minimum monthly payment required, you would pay $1142 a month (assuming a 25 year amortization), improving your cash flow by $450. Choosing a longer amortization - 30 or 35 years - can further improve the amount of free cash you have available. In the long run, you would end up paying more interest this way, so it is not an advisable long term strategy: after all, no one wants to pay a mortgage forever. It is, however, a good way to deal with a short term cash crunch.
So... is it worth it to refinance? Every case is different, and every client has different needs. Let an MB Direct Mortgage Agent analyze your situation with you and find the best solution for you.
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